Israel says re-labelling settlement products is 'blatant discrimination', but South Africa claims it conforms with its existing policy on the occupied territories. Photograph: David Levene

A diplomatic row has been growing as Israel summoned the South African ambassador to explain his country's decision to label products from West Bank settlements as coming from the occupied Palestinian territories.

Ismail Coovadia would meet with officials at the foreign ministry, Israeli media reported.

South Africa claims the decision on labelling conforms with its existing policy on the occupied territories. "This is in line with South Africa's stance that recognises the 1948 borders delineated by the United Nations and does not recognise occupied territories beyond these borders as being part of the state of Israel," said Jimmy Manyi, a government spokesman.

The trade and industry minister, Rob Davies, added that the move was not a boycott of Israeli products, but aimed at helping "South Africans who do not support Israel, but who do support the Palestinians, to identify those products".

There was an angry response from the Israeli government, which described the move as "blatant discrimination based on national and political distinction".

Yigal Palmor, a foreign ministry spokesman, said: "This kind of discrimination has not been imposed – and rightly so – in any other case of national, territorial or ethnic conflict. What is totally unacceptable is the use of tools which, by essence, discriminate and single out, fostering a general boycott."

He added: "Such exclusion and discrimination bring to mind ideas of racist nature which the government of South Africa, more than any other, should have wholly rejected."

The South African Jewish Board of Deputies said it was "outraged" by the decision to re-label goods. Zev Krengel, its president, said: "It is the firm belief of the Jewish communal leadership that the proposed measures are discriminatory, divisive, inconsistent with South African trade policy and seriously flawed from both an administrative and procedural point of view.

"At bottom, they are believed to be motivated not by technical trade concerns but by political bias against the state of Israel. All attempts to discuss these concerns, however, have come to nothing."

Last week South Africa's deputy foreign minister Ebrahim Ebrahim recommended against visiting Israel. "Israel is an occupier country which is oppressing Palestine, so it's not proper for South Africans to associate with Israel," he told City Press newspaper. "We discourage people from going there except if it has to do with the peace process."

An international boycott of South Africa in 1980s was a crucial factor in forcing the apartheid regime to eventually surrender power. Israel was one of the last countries to sign up to the campaign.